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Holding Distribution Utilities Liable for Outage Costs: An Economic Look

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  • Brennan, Timothy J.

    () (Resources for the Future)

Abstract

Storm-related service outages in electricity and telecommunications have created public controversies regarding the adequacy of ex ante efforts to prevent outages and ex post efforts to restore power. Product liability rules, used to promote quality of service throughout the economy, might seem to offer a solution to this problem in the utility context. Strict liability rules avoid the need for determining whether utilities were appropriately careful but increase ratepayer costs because of moral hazard and, in effect, force ratepayers to buy outage insurance from the utility. By leaving customers exposed to damage, negligence rules can avoid these shortcomings but force upon regulators and courts the need to make difficult decisions regarding efficient care levels. Profit regulation, risk aversion, regulatory commitment failures, and distributional considerations add further complications. Still, the consideration of liability rules may provide worthwhile reminders that increased reliability is neither free nor guaranteed by public provision of service.

Suggested Citation

  • Brennan, Timothy J., 2013. "Holding Distribution Utilities Liable for Outage Costs: An Economic Look," Discussion Papers dp-13-16, Resources For the Future.
  • Handle: RePEc:rff:dpaper:dp-13-16
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    File URL: http://www.rff.org/RFF/documents/RFF-DP-13-16.pdf
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    References listed on IDEAS

    as
    1. Joskow Paul L., 2008. "Incentive Regulation and Its Application to Electricity Networks," Review of Network Economics, De Gruyter, vol. 7(4), pages 1-14, December.
    2. Brennan, Timothy J., 2010. "Optimal energy efficiency policies and regulatory demand-side management tests: How well do they match?," Energy Policy, Elsevier, vol. 38(8), pages 3874-3885, August.
    3. Timothy Brennan, 2010. "Decoupling in electric utilities," Journal of Regulatory Economics, Springer, vol. 38(1), pages 49-69, August.
    4. Brennan, Timothy J, 1989. "Regulating by Capping Prices," Journal of Regulatory Economics, Springer, vol. 1(2), pages 133-147, June.
    5. David Sappington, 2005. "Regulating Service Quality: A Survey," Journal of Regulatory Economics, Springer, vol. 27(2), pages 123-154, November.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    electricity; distribution; reliability; outage; blackouts; liability; negligence;

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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